Welcome everyone to Hydro's third quarter results. Welcome also to all of you following us on webcast today. We will present the results, and then we'll have time for Q&A after this session. Our results will be presented, as usual, by our CEO, Svein Richard Brandtzæg, and CFO, Eivind Kallevik. Svein Richard?
Thank you, Inger. First of all, I would say that I'm very happy that I have decided to continue as the CEO of Hydro, and I will assure you that I will do my utmost to continue Hydro's path towards leadership in the aluminum industry. We will also do our utmost to make sure that we create shareholder value in everything we do. We will explain more about this in our Capital Markets Day, 27th and 28th of November, and we look forward to see you again there. Now let's move over to today's business, Hydro's third quarter result.
Underlying result of 1.49 billion is about NOK 946 million above the second quarter result, and NOK 832 million above the same quarter last year. The main driver for this is higher all-in metal prices both LME and also the premiums has increased. The fact that LME is increasing also supports the alumina business. All-in metal prices in Norwegian krone has increased about 13% during the quarter. I'm also very happy to see now that the B&A improvement program in Brazil is now showing results on the bottom line as we have also now been able to reduce the cost of production of alumina in Brazil during the quarter.
We have had about 50% higher energy price in the third quarter compared to the second quarter. That is supporting the energy result, but somewhat compensated by lower spot sales in the quarter. We said in the second quarter that we expect 2%-4% growth of aluminum consumption in 2014. We have now leveled this up a bit to 3%-4%. As of now, it is 3.5. We continue to see a deficit of aluminum, undersupply of aluminum outside China, and this development is expected to continue, so the market will remain tight going forward. Before moving into the details, just a couple of comments on the macroeconomic situation. Starting with Europe, we see several indicators softening.
We see that also in Germany there are signs of reduced industry production, and demand is slightly weaker than what we have seen before. If you look at the aluminum demand and primary aluminum demand in Europe so far, it has been about 2.7% growth in Europe year to date. This has been quite good, but we see signals of weakening in the European market as we go forward now. In the U.S. market, the situation is quite different. Good job figures, indicators positive. The demand of aluminum is not only driven by automotive, but also the fact that there has been increased activity in the building and construction market in the U.S. during the last quarters.
Demand for primary aluminum so far in U.S. has been about 3.4%. In China, we have had sideways development. In general, there are some uncertainties, of course, but we also see that there are also parts of the market that is working quite well. We are a bit happy to see that the demand for aluminum in China is higher than what we expected previously. It's about 12.6%, and we expect that also to continue. It is partly supported by government support to infrastructure. Even we see some weakening of the building market in China, there are still a lot of activities and still good aluminum demand in China.
In emerging markets, Brazil is in a recession, and we see that the GDP is not moving in the right direction. On the aluminum side, there has been curtailments among our peers. The aluminum market in Brazil is still quite tight. If you go to Southeast Asia and India, there is a good activity in the aluminum market, and we see increasing demand in these markets. In Eastern Europe, it's of course affected by the Ukraine-Russia crisis, and that has also been seen in the aluminum market that it has had impact on demand.
If you then move to the, look at the supply-demand balance outside China, there has been slightly lower demand from quarter to quarter, but as I said, 3.5% growth outside China year to date. If you look at production increase year to date has been outside China about 2%. If you look at the supply-demand balance, it's an increasing undersupply outside China, which is of course resulting in the tight market. Again, we see the drive coming from the automotive sector and transport sector. It's a lot about substitution from steel to aluminum, and also to some extent from copper to aluminum in some markets.
The tight market, we can really see the effect of with regard to the ingot premiums, which is coming up to record high levels. $420 per ton average in the Japan market. In the US, about $450, $460 in Europe. We are now around $500 per ton as a standard ingot premium in the different markets. This is a reflection of the very tight physical market. Just for your information, again, we remind you that we are not selling a lot of standard ingots. We are selling metal products.
Metal products is priced on top of LME, and we are now selling metal products at premiums between $800-$900 per ton for extrusion ingots and primary alloy. For sheet ingots, they are priced on LME plus standard ingot premium plus a sheet ingot commercial premium, which is also now showing very good development. We are now creating even more value in our cast houses due to the fact that our strategy has been for the last 10, 15 years to produce metal products and not standard ingots. Standard ingots is helping us to also increase the premiums for metal products. With regard to the deficit, just for your information, on the left side, you see the deficit in the U.S. market.
The green curve is showing the increasing deficit over the last years, from 2009 up to 2014, and the correlated standard ingot premium. The same is shown on the right side, on the European market, where we also see increasing deficit in the European market and also increasing standard ingot premium. This is very much linked to the tightness in the physical market, and as we also see going forward that there is increasing undersupply, we expect this. There is a good reason to believe that ingot premiums will remain at quite high levels. There are also some uncertainties related to that, which I will come back to, which is again the change in warehousing rules related to the LME warehouses.
If you then take a look at LME and the all-in standard ingot price, positive development, as I said, 13% improvement in Norwegian krone, partly due to improved metal price but also strengthening dollars during the quarter. We had price levels between $1,850 and $2,100 per ton during the quarter. The realized price was $1,906 up from $1,762 from the second quarter. We saw when the LME was increasing up to $2,100 at the end of August, that there was a tightening of the contango. As the LME went to lower levels, then we saw a widening of the short-term contango.
That of course made the financial deals for the warehouses still profitable, and that continues as we see it now. Inventories going down of course as a result of the deficit. We see both inventories in days and in tons going down. LME inventories going below 5 million tons from 5.1 to 4.6, about 10% reduction in LME inventories, and in total, about 7% reduction in inventories outside China, which is again a good price signal also going forward, the fact that it's now moving in the right direction from the high levels we had for quite some years. LME tried to change the warehousing rules, but there were some objections against this.
U.K. Court of Appeal upheld now the LME's appeal against the High Court judgment, which judged or ruled the warehousing rules unlawful. Now they have got support for this, so unless Rusal take LME further to the Supreme Court and got support for that, LME is ready to implement the new warehousing rules in beginning of February next year. How dramatic this is has been a question we have got from several sources, but we see this as a natural development of what has already partly been implemented. One of the warehouses has already been operated as if the warehousing rules has been executed, and you see here that the warehousing inventories are going down.
The warehousing rules will prevent the warehouses to increase inventories when the waiting time or the delay of the queues is more than 50 days. What we have seen now is that there's been more metal coming out of the warehouses, and now we are talking of the big warehouses in Detroit and Vlissingen, more metal coming out than metal going in. We also see that the queues in days are increasing due to the fact that there are a lot of cancellation of warrants in these warehouses, which means that there are more metal that is going out to the physical market. Again, a reflection of the tightness in the physical market.
The physical market will now get sources from the primary producers, but also from these warehouses. If you then move upstream and take a look at bauxite situation, you are all aware of the export ban of bauxite from Indonesia. Indonesia represented 70% of the imported bauxite to China, and that has been stopped from twelfth of January this year. China is now looking for bauxite in other areas, and they have found some bauxite, which was closer to China than what they had in the previous quarter. We have seen the leveling off on the bauxite price itself. The quality of this bauxite is very different from the quality that we are operating with than some other operating with.
If you take a look at the value in use, and that is a calculation based on the standard bauxite, we see that the value in use in China is increasing quite substantially during this last quarters. This is due to the fact that the bauxite that is now imported to China from other sources than Indonesia contains less aluminum, and it also has a higher reactive silica content, which means that they have to use more bauxite and more caustic soda to refine this into aluminum oxide, alumina. That means this cost has a higher cost implication for Chinese refineries, which is again raising up the alumina cost for Chinese producers. There is a completion of the elections in Indonesia.
The new president was inaugurated just a few days ago. There is no signs that they're going to change their mind with regard to the export ban of bauxite from Indonesia. We are following carefully developments there, and we have not seen any concessions with regard to export, even from companies that may have plans to build alumina refineries in Indonesia. We don't see any projects, and we don't see any export at all. We see that this is going to continue still going forward. If you take a look at the alumina price, the situation in China is of course one of the driving factors here. We see that there is higher price of alumina in China.
There is a drive for import of alumina helping the alumina price. We have seen the price going up quite significantly during the quarter, above $355 per ton as we see it now. This is moving in the right direction. We also see that there are less curtailments of primary aluminum capacity outside China now. That means that there are less oversupply of alumina that we were concerned about for a period of time. Now China is the driving factor. There's a good balance in the market, and we see higher prices.
In relationship with the LME, alumina in percentage of LME, we have seen quite high prices, high percentages during the end of the quarter as LME came down and Platts index price of alumina went up to the levels we see. This is the highest levels that we have seen since the same period in 2011. Export-import balance to China. This is quite important to follow carefully because we see that the bauxite import in total is going down, although there has been some higher import of bauxite in this quarter compared to the previous quarter. China needs to import 40-50 million tons of bauxite every year. As I said, 70% of this was coming from Indonesia. They are searching around the world for other sources.
An alternative for them is to import alumina to a higher degree. We have seen a 77% increase in alumina import to China so far this year, which is of course supporting the price development of alumina. The fight for raw materials is continuing, and we are very happy to have the position as we have in Brazil, and also now seeing higher values, higher prices of our raw materials. Looking at the export-import balance of primary aluminum, we don't see big differences, but we have seen increase in export of fabricated and semi-fabricated products. These are products that are not observed in our main markets, but they are exporting to neighbor countries in Asia. This have a secondary impact on our markets.
This is something we are following carefully. We see volumes are going up. The quality is not exactly at the same level as we have, but we should also keep in mind that the Chinese are improving their product qualities. So far, we don't see their volumes threatening us in the main market. Again, this can have an effect in the end, and we see some pressure on margins in some of the downstream businesses. If you then take a look at the cost development, as I said, I'm very happy to see now that the improvement program that we have in Brazil is also now showing on the bottom line. We reduced the cost of production in Brazil with $11 per ton of alumina.
EBITDA margin is now $35 per ton with the current prices. We are continuing our efforts. The B&A program that has a target of delivering NOK 1 billion at the end of 2015 is moving according to plan. The target this year is to deliver NOK 600 million in improvements in 2014. We had a so-called pigging program in the pipeline that goes from Paragominas to Alunorte. The 250-kilometer-long pipeline had to be cleaned, and we had a cleaning program early in this quarter, which was successfully conducted. That resulted in somewhat lower bauxite production. That, of course, had no impact on the alumina production.
Now the bauxite production is back to higher levels, and we have a record bauxite production in Brazil for the moment. With regard to ICMS taxes, we have established close dialogue with authorities. As you know, there is election in Brazil, both on the federal and the state level, and we have to see who will be the new governor in the Pará province. We have had good contact with previous governor, and we will establish good contact if the previous continues or if there will be a new governor in Pará. This, the second round is now on Sunday, and then they will take some time before they settle all the different positions. Then we will continue our dialogue to make sure that we have competitive frame conditions in Brazil.
On Primary Metal, we continue our improvement programs. As you know, we finalized the $300 program that was done by Hilde Merete Aasheim and her organization last year. Now she is continuing with the $180 joint venture program, which is moving according to plan. We have record low cost in Qatalum. Qatalum is contributing positively, and Qatalum is operating continuously above nameplate capacity and is one of the, I would say, 10% best smelters in the world today, maybe even better. With the EBITDA margin we have today, $450 per ton year to date, in the quarter the EBITDA margin was $630 per ton, including Qatalum.
This again shows that with the prices we have now, we are able to generate better returns. The $280 program will be concluded in the end of 2016. The fact that we have concluded a $300 program in the fully owned primary smelters doesn't mean that we have stopped the improvement programs there. Of course, now it will be less contribution from that, but we continue our efforts also in our fully owned smelters to increase the competitiveness of our smelters. In Rolled Products, we had some small deviations in the different segments, but all in all, flat production compared to the previous quarter. Some higher can sales. We had also higher automotive sales and less building and construction products.
If you take a look at different segments year to date and or in the third quarter compared to the third quarter last year, it was 5% higher sales this year. Due to optimization, we reduced some building products, increased in litho and automotive, and then also some higher general engineering specialty products that gives us higher margins. Some movements between different segments, but again, flat from the second quarter to third quarter and 5% improvement from the third quarter last year in Rolled Products. If you move to Sapa and the extrusion business, we experienced there low growth in Europe, 1% since same quarter last year, but 7% improvement in the U.S. market.
If you take it quarter by quarter, due to seasonal variations, it was only 1% growth from the second to the third quarter in the U.S. market, and it was minus 6% in Europe. That is, of course, impacted by a seasonal variation, but also the fact that there are some signs of softening demand in Europe. Our concern is, of course, Germany here. That plays a very important role. We have some global markets, market segments in Sapa. Precision tubing is one that is growing. It's a product that goes into automotive, but also into the heating, ventilation, and air conditioning, non-automotive market for buildings, which is also now a high growth area where we are substituting copper with aluminum.
Finally, let us move into the energy situation and the reservoir level, where we had lower inflow during this quarter. We are still in the Southwest of Norway above the 10-year average. Looking at the Norwegian reservoir situation, all in all, there is lower. We are now below the 10-year average. In the previous quarter, there were export restrictions, cable restrictions that impacted on the price development. As I said, we had quite a good development on prices, about 50% higher prices in the Southwest of Norway. The fact that we also saw a nuclear power coming into the mid Norway area.
There was less difference between NO2 and NO1, NO3, which is good for Hydro because we have our Sunndalsøra smelter in NO3, and we have higher prices in NO2. All in all, we had good price development for our power production in the third quarter. With that, I leave the word to Eivind.
Thank you, Svein Richard Brandtzæg. Good morning to everyone, and thank you for joining us for the third quarter result presentation. There are no new accounting issues or other special items of significance this quarter, so without further ado, I suggest we just dive straight into the numbers. The underlying result before financial items and tax increased for all business areas, offset by somewhat higher eliminations and some reduction in the Sapa results. This gave us a group result of NOK 1.49 billion for the quarter, up NOK 946 million compared to the last quarter, and NOK 832 million compared to the third quarter of 2013. The main elements impacting the quarter-on-quarter changes starts with energy volume and price.
It is up NOK 0.1 billion, primarily driven by the positive price and margin effects, where we saw roughly 50% increase in the price per megawatt hour in the NO2 pricing area and also shrinking regional price differences between the NO2 and NO3 price area. We saw higher all-in aluminum prices affecting both Primary Metal as well as the Rolled Products. And also the LME-linked alumina price sales in B&A had a positive contribution this quarter, all in all having a positive impact on the results of NOK 1.2 billion. We also saw a positive contribution on the cost side of NOK 0.2 billion, partly driven by the cost improvements that we've seen in B&A and Alunorte, and the other part coming from seasonal lower costs within the Rolled Products business area.
Other margins and volume reductions, which include Sapa, had a negative impact of NOK 0.3 billion. This is partly due to lower volumes of bauxite within B&A, but it's also continued and increased margin pressure within Rolled Products, in addition to somewhat seasonal lower sales within most of the business areas. Finally, there is elimination, currency and inventory effects bringing the result down by another NOK 0.2 billion. This is primarily driven by a higher degree of eliminations this quarter, which I will refer to on a later slide. If we take a quick look at key financials, we had an increase in revenues of roughly NOK 1.4 billion from the second quarter. The major drivers are again higher aluminum prices and higher premiums affecting Primary Metal Markets and Rolled Products.
In addition, we have higher prices on the alumina contracts, which are LME-linked. This more than offset the somewhat lower seasonal volumes that we've seen throughout the business. In this quarter, we excluded positive effects of NOK 447 million from underlying EBIT, giving us a reported EBIT of NOK 1.937 billion. Arne will revert more to the items excluded on the next slide. One big item this quarter is the financial expense, which is a negative impact of NOK 1.1 billion compared to roughly negative NOK 200 million in the last quarter. Of that NOK 1.1 billion, NOK 1 billion is related to the US dollar-denominated debt that we carry in Brazil and in Norway. Then of course, it's mark to market to an appreciating dollar, giving it unrealized effect.
This gives us an income before tax of NOK 832 million, resulting in a tax expense of NOK 166 million. Roughly 20%, significantly lower than the 36% that we had in the second quarter. The lower tax expense is driven by a much higher relative share of income from the primary and the B&A business area, and a less relative share from the energy side, which of course is affected by the power surtax. If we go through items excluded, this of course, the intention is to give you a better view of what the real underlying result is, and underlying performance. The first line, there is an effect of NOK 54 million on unrealized effects on power and raw material contracts.
This for all practical purposes comes from the weakening of the euro towards the NOK, which has an impact on an embedded derivative in the Søral contract. Second line, we have unrealized derivative effects on LME-related contracts. We have a positive effect of NOK 220 million. That's for the most part comes from the primary metal business area and Rolled Products, where we have a long position out on the LME curve and then rising market that gives an unrealized gain. Third line, metal effect within the Rolled Products business area, a positive effect of NOK 202 million. This again is due to the higher LME prices on sales reflected in revenues compared to what was reflected in cost.
On impairment this quarter, NOK 28 million in impairment charge relates to some impairment of PP&E within the primary business area. Last, on this slide is minus NOK 2 million, which is our share of items excluded in Sapa. It includes restructuring charges, which is almost all offset by unrealized derivative effects for that entity. If we turn to the business areas and start with Bauxite and Alumina, we observed this quarter a negative EBIT of NOK 26 million, an improvement of some NOK 243 million compared to the last quarter. Main contributor, or at least one of the major contributors, is the increase that we've seen in LME prices, which has lifted our realized alumina price for the quarter.
As you know, probably, approximately 75% of our sales is linked to LME prices, while 25% is linked to the index price. During the year, during 2014, roughly 60% of the index contracts is done in the first half of the year and roughly 40% in the second half. Which means that from a profitability perspective, there is a slight negative contribution from less index volumes in the third quarter and somewhat less index prices. Prices are important, but also very importantly is what Svein Richard Brandtzæg mentioned. Very happy to see now that the B&A program starts to take effect and starts to become visible on the bottom line.
We've seen a reduction in the implied alumina cash cost of $11 between the two quarters, from $263 in the second quarter to $252 in this quarter. It's mainly driven by Alunorte. It's it is higher energy efficiency, it is reduced raw material costs, and it's higher raw material consumption at the plants. As we also guided on, and Svein Richard Brandtzæg commented on, we have some lower bauxite production this quarter, given that we have done the pipeline pigging. In addition, alumina volumes slightly down this quarter compared to last quarter, but remember, second quarter was high also from the fact that we calcined quite a lot of hydrate sitting in inventories.
Looking forward, as we have now completed the cleaning of the pipeline, we are starting to see bauxite production coming back up to higher levels, and we expect to continue to see that increasing throughout the fourth quarter. We also expect to see somewhat higher alumina production in the fourth quarter. B&A program continues. We saw big effects in the third quarter, and we expect these effects also to continue in an increasing manner as we go through 2015 and towards the NOK 1 billion target for that year. In Primary Metal, we basically saw a tripling of the results from some NOK 420 million in the second quarter to more than NOK 1.2 billion in the third quarter.
The largest contributor in a positive direction again is the all-in metal price increasing from some $2,238 in the second quarter to $2,443 in the third. This equals roughly a 9% increase measured in dollars. However, if you appreciate also the dollar appreciation, we see measured in NOK that this increase is actually a 13% increase, giving us a NOK 900 million positive result contribution. Working in the other direction was lower sales volumes and also some higher raw material costs, primarily driven by increased alumina costs as they are linked to LME for the most part. Going into Q3, we have priced roughly 50% of the volumes at around $2,000.
The same as this quarter, we also in the fourth quarter, we do expect to see somewhat higher realized premiums. Next quarter, we guide towards $30 roughly in increased premiums for our products. For Primary Metal, we should expect to see somewhat lower sales volumes in addition to somewhat increased fixed costs, seasonally increased fixed costs for the quarter. Touching on Qatalum, we have underlying net income of NOK 189 million, an improvement of NOK 78 million compared to the previous quarter. Mainly attributable to higher realized all-in prices compared to the previous period. Also in Qatalum, we continue to see good improvement efforts taken.
The organization found new levers to pull in order to support the successful completion of the 180 dollar program. These efforts combined now leads to a cash cost at the production or implied cash cost at the production of Qatalum below a thousand dollars per ton, making it a very competitive smelter in the smelting universe. Metal Markets, we delivered an underlying EBIT of NOK 171 million versus NOK 100 million in the second quarter. Now if we exclude the currency and inventory valuation effects, the improvement was NOK 14 million, up to NOK 136 million for this quarter. The underlying EBIT was primarily impacted by three things. We saw slightly lower seasonal volumes at the remelters.
We saw very strong and good results from the sourcing and trading activities. As I said, in addition, we realized the majority of the inventory, revaluation effects or valuation effects, which had a quarter-on-quarter variance of roughly NOK 59 million. If you look into fourth quarter, we expect slightly higher, remelt volumes. but when we guide for this area, let me remind you that the trading activities are volatile in its nature. There are currency effects, and the results from this operation was probably on the high side, and very strong side for the third quarter. In Rolled Products, we saw a good, financial performance or good financial, improvement of NOK 66 million from the NOK 177 million that we saw in second quarter. We had stable shipments.
Operating costs were lower in third quarter, as should be expected due to seasonal shutdowns. However, on the other side, we continue to experience a margin squeeze on the fixed premium contracts that we have mentioned before, in addition to a general margin pressure on the other products that we produce. This was more than offset by the effects from an increasing all-in metal price for the Rheinwerk smelter, which is accounted for under the Rolled Products business area. That smelter produces currently at the speed of roughly 150,000 tons per year. Looking into fourth quarter, fourth quarter is typically the highest maintenance season, which should also lead to somewhat lower volumes in fourth quarter, which is normal for this business.
Premiums continue to increase, which again, will lead to continued margin pressure on the fixed premium contracts. As I said, for this quarter, there is also an increased pressure on margins on other products as well. The effects on Rusal, of course, or from Rusal, will be dependent on the development of LME and the premium in this period. In Energy, we had an improvement in underlying EBIT of some NOK 65 million compared to second quarter, giving us an EBIT this quarter of NOK 234 million. Really three elements supporting this development. First is the increase in prices in our production area, the NO2 area.
As you will remember in Q2, the prices in NO2 were relatively low given that we had a high degree of snowmelt as well as export restrictions on cables. Third quarter did not have those impacts, thus leading to higher prices. Secondly, was the mid-Norway situation that we had in second quarter, with low nuclear capacities or lower nuclear capacities than it is better in Sweden, lifting prices in that area up. What we've seen during this period is then a 50% increase in NO2 area of prices from NOK 168 per MWh to 247 in the third quarter. The regional price area differences has also come down from 86 in variance in the second quarter, down to 26 NOK per MWh in the third quarter.
Last part or the third part of this is production. Productions were down some 78 GWh in the third quarter. That is partly affected by the Rjukan upgrade, which we did talk about. Also if you look at spot sales, you will see that this is down more than 155 GWh, which also reflects the expiry of a smaller sourcing contract at the middle of August. If you look into the fourth quarter, all of our production capabilities are now back in line with Rjukan upgrade done. So far we started this quarter with approximately 6% higher prices in the Southwestern Norway and the compared to the average of the second.
We also see the regional price differences coming further in from an average of 26 in the third to so far 19 NOK in the fourth quarter. Again, let me just remind you that energy volumes and price uncertainty in the hydropower production is highly uncertain. If we look at Sapa, we continue to see strong demand and strong markets in the North American regions, while the European region certainly had a seasonal decline, but also some uncertainties when we look into fourth quarter. Our share of the underlying net income declined some NOK 76 million from the last quarter, again driven by seasonality. Very important is to see that the restructuring agenda and the improvement agenda in Sapa is progressing well according to plan as...
is being implemented according to plan. Also for Sapa, let me remind you that, typically the fourth quarter from a seasonal perspective is the weakest quarter in the year, for downstream business. For other and eliminations, this quarter, we have a, negative result effect of NOK 349 million, compared to a negative effect of NOK 52 million, last quarter. We already been through the Sapa numbers. If we look at the eliminations, it is, from negative NOK 8 million in second quarter to negative NOK 276 million this quarter. This has very much to do with increasing margins in our upstream portfolio, so until it's actually sold to third parties, we have to eliminate the internal or the profit until it's realized to a third party. It's reflecting higher margins in the upstream side.
The last part on this slide is what we call other, which is corporate activities and some other activities, which was a negative NOK 176 million last quarter. It's improved to NOK 128 million this quarter. So overall it's very much in line with the guidance that we've given of a negative NOK 150 million per quarter. Net cash development, we started the quarter with a net debt position of NOK 1.9 billion. In this period, we created or generated a positive EBIT of NOK 2.6 billion, up roughly NOK 1 billion for the reasons I've mentioned so far. We have a negative development of operating capital of NOK 900 million or NOK 0.9 billion, very much driven by the increased prices for LME, as well as the increased premium.
It's a negative adjustment of NOK half a billion, which is primarily related to taxes for the period. Invested NOK 900 million in this period. Year-to-date, NOK 2.2 billion, very much in line with the guidance that we have given for the annual spend. Also taken out NOK half a billion, which is primarily related to the strengthening of the US dollar and unrealized currency effects. Leaving us at the end of the quarter at the net debt position of NOK 2.1 billion, with a positive cash flow from operations of NOK 1.1 billion. Let me finally just make some comments on what we call adjusted net debt developments, and then let me point you to the net pension liability. As you will remember, we had an increase from year-end to second quarter.
We also see a continued increase from NOK 6.3 billion-NOK 6.6 billion between the second and third quarter. Again, this is driven by the lower interest rate environment that we see in Europe, particularly in Norway and Germany. As you have lower discount rates on future pension liabilities, your liabilities increase. With that, Svein Richard Brandtzæg, I'll leave the word to you.
Thank you, Eivind. The main priorities going forward is, first of all, to lift bauxite and alumina production in Brazil. That is an effort that is a part of the improvement program also in Brazil. The improvement program is also going to reduce the cost levels in our bauxite and alumina operations. We continue the efforts in the primary production. The joint venture program continues according to plan, which should be finished in the end of 2016. We have a Climb program in the Rolled Products that is also a cost reduction program, but more a margin improvement program in the Rolled Products.
Also in the situation now where we see a tightening market, there is better opportunities for us also to optimize the margins in the different market segment and now utilize the commercial opportunities that appear in a better market for aluminum production. Thank you very much.
All right.
Okay, we open for questions from the audience, if there are any. We have a microphone for you if you have any. If you don't, then I think there are a couple of questions from the webcast. Maybe a question from you then, Paul.
Yes. We have one from Alain Gabriel in Morgan Stanley. On the cost savings, which are to be taken out in Primary Metal, through the $180 program, what does this mainly consist of?
Okay. This consists of several different elements. As we also did in the fully owned smelter program, the $300 program. There were several elements that contributes to the improvements. Operational improvements, meaning reduction of energy consumption, increased current efficiencies are part of it. It is productivity improvements. It is improvements in the product premiums and several other factors. It is not one single element here. It consists of a package of several elements that contributes again to reduce the operating cost with $180 per ton.
One more question, Paul.
Yes. We have one from Jatinder Salwan in Société Générale. It's for you, Eivind. It's on eliminations. They were, as you mentioned, quite high for the third quarter.
Mm-hmm.
Can we say something about how this develops going forward?
If you think, if you believe that prices will stay as they are and margins stay as they are into fourth quarter, you will see a relatively little effect on elimination line in Q3, meaning that it will be significantly lower than what we saw this quarter. However, if you anticipate the prices will continue to go up, you will see higher eliminations effect. If prices will come down, it will be the reverse.
Okay. Unless there are any other burning questions, I think we will end it here for now. Thank you very much for joining us today, and see you next month at the Capital Markets Day. Thank you.